Help me learn - critique these trades I made (weekly AMZN ICs)

[Draknor]

Need a bit more of a process imo. Need to have a view on volatility or direction of the underlying. Scalping theta is collecting nickels in front of a steamroller.

Yeah - that's one of my biggest takeaways, is needing more of a system or process.

Do you have a process? How did you develop it?

 

[Draknor]

Not an expert here but a fellow option fan. I feel like adjustments work at best while in profit. An adjustment on a green position can protect it and/or enhance it. But on a losing position, like a sell gone ditm or flirting ITM close to expiry, adjusting feels a bit like a stop and reverse, where you still factor in a loss/cost, and buy more time, maybe changing direction or volatility expectations and management. Sometime on those credit strategies the best adjustments is taking a loss and restart with a clean state, before it's too late and one has to deal with max loss or assignment.
It happens that a leg has no seller to close the full strategy, in that case I would close them individually as long as I am out.
For personal peace of mind I don't sell credit anymore unless I want the stock, I own it already or it's cash settled.

Yeah, I'm still trying to figure out if / when it makes sense to adjust, vs just close out & move on. On another IC play (PYPL during earnings) - PYPL sank after ER and I rolled down my profitable call leg, only to have PYPL later in the week run back up & through my new adjusted call leg - so I shot myself in the foot adjusting my profitable position in that scenario.

 

[horizon]

I use TDA and they'll start liquidating positions with pin risk anytime after 1pm. It's frustrating, but at the end of the day it's just something I need to factor into my strategy & approach.

It is weird, I use TDA as well and I had a deep ITM credit spread which already max loss but they did not auto liquidate it. And 30 min before market close, the stock rallied and I am able to close for profit.

 

[longandshort]

Yeah - that's one of my biggest takeaways, is needing more of a system or process.

Do you have a process? How did you develop it?

I work in the industry and went through bank training before trying to launch my own fund. Your process should start by you thinking about actions and their causality.

For example, if you are trading volatility — what causes it? What ends it? What are KPIs you can use to measure and track it? Then, you can consider scenarios (what happens to xyz market when there is a shift in demand?) It is a good idea to start by reading literature on this and then stitch together a process you can backtest (doesn’t need to be amazing just needs to show that there is an opportunity— a la excess returns to whatever benchmark you are comparing yourself to).

 

[Poljot]

Hi Draknor,
Here are some things to think about to develop a process:

1. what % of capital to use for one trade
2. what is max risk of one position
   
3. what is max loss of a trade and am I willing to accept it, see no. 2
   
4. if not, when do I close it out
   
5. do I enter unlimited loss strategies in my game plan, see no. 2
   
6. if yes, where is my stop
   
7. when do I say "he is going against me" - name price/vol stop level before entry
   
8. should I ever adjust or make it a policy to never do it
9. am I trading around earnings/FED or must avoid them
10. do I trade directional or volatility
11. do I close out on expiry day or let expire

...

 

[taowave]

The obvious mistake was you didn't delta hedge in any way shspe or form.Bare minimum,you should have been rolling your put spread up by selling flys and taking in credits,perhaps rolling your short call spread up at the same time. No way should you lose the max on a condor with a way move....

Be thankful you werent short naked gamma and caught in the headlights...






hedge

I'm a fairly new options trader (started within last 6 months), and while I feel like I have a good grasp of the basics & greeks on paper, I'm struggling with the application of those concepts to the real world. So I'm looking for feedback on this trading "strategy" that I've made over the last few weeks - "strategy" is used loosely because I didn't REALLY have a plan, but it worked for a couple of weeks -- until it blew up in my face.

Obviously there's a lot I have to learn yet - creating a trading plan, pre-defining my risks & stops, etc.

But for this thread, help me understand what I did well and didn't do well in terms of selecting the trade, putting on the trade, and modifying (or not modifying) the trade.

General Strategy: Selling weekly AMZN iron condors
Rationale for the strategy:
- Capture the most time decay
- Unlikely to move significant percentages in a single week (although I didn't end up using percentages when picking my short strikes)
- Only locking up BPR for the week for a trade (vs 2-3 weeks for a 30-45 DTE position)

Trade 1: Oct 23'20 3075/3080 + 3375/3385 Iron Condor (qty 10, 4 DTE, 45% IV)
Sold on 10/20 9:44 @ $2.55 ($2550 total credit, $7450 BPR)
Rationale:
- AMZN at $3218;
- $3100 seemed like safe support, so set put wing under that @ $3085
- My default option order size was 10, so go down 10 pts for long put; max loss $10k
- Then set call wing a few levels up from approx equal distance @ $3375
- (Looking back: my short positions were around 16-17 delta)
Adjustments: None
Closed on 10/22 15:59 @ $0.55
Net Profit: $2000

Trade 2: Oct 23'20 3040/3050 + 3250/3260 Iron Condor (qty 10, 1 DTE, 39% IV)
Sold on 10/22 10:43am @ $2.05 ($2050 total credit, $7950 BPR)
Rationale:
- AMZN drifting lower (at $3131)
- Sell a 1DTE IC that's now slightly more centered
- Same qty/wing width as before
- (Looking back: short put was 17 delta, short call was 10 delta)
Adjustments: None
Closed on 10/23 11:38 at $.21
Net Profit: $1840

Trade 3: Oct 23'20 3090/3100 + 3235/3245 Iron Condor (qty 10, 0 DTE, 33% IV)
Sold on 10/23 9:36am @ $1.50 ($1500 total credit, $8500 BPR)
Rationale:
- Another (totally unrelated) position was losing
- My 2x AMZN ICs were profiting
- "Revenge trade" another AMZN IC to make up for my other loss
- Picked levels I didn't think AMZN would break through
- AMZN at $3175
- (Looking back: short put 10 delta, short call 13 delta)
Adjustments: None
Closed on 10/23 13:38 at $.26
Net Profit: $1240

Trade 4: Oct 30'20 3040/3050 + 3300/3310 Iron Condor (qty 10, 8 DTE, 59% IV)
Sold on 10/23 13:42 @ $6.62 ($6620 total credit, $3380 BPR)
Rationale:
- Earnings next week
- Sell weeklies from the Friday before (vs Monday week of) to capture more premium
- Set wings at what I thought were fairly safe distances from current price
- AMZN at $3163
- (Looking back: short legs were about 33 delta)
Adjustments:
- 10/27 14:00 AMZN moving up encroaching call leg, so rolled call leg up by buying 3300/3310 and selling 3330/3340 ($460 debit)
- ER was after market close on 10/29
Closing:
- Bought 3330/3340 calls back at 10/30 9:30 for $0.35 ($350 debit)
- Bought 3040/3050 puts back at 10/30 11:55 for $3.75 ($3750 debit)
Net Profit: $2060

Trade 5: Oct 30'20 2960/2970 + 3355/3365 Iron Condor (qty 10, 8 DTE, 59% IV)
Sold on 10/23 13:46 @ $4.80 ($4800 total credit, $5200 BPR)
Rationale:
- Same as prior trade, but go widen my spread in case AMZN has a bigger move
- AMZN at $3162
- (Looking back: short put 21 delta, short call 26 delta)
Adjustments: None
Closed on 10/30 9:30 at $0.50
Net Profit: $4300

Trade 6: Nov 6'20 2790/2800 + 3200/3210 Iron Condor (qty 10, 4 DTE, 50% IV)
Sold on 11/2 11:14 @ $2.65 ($2650 total credit, $7350 BPR)
Rationale:
- Hey, it's been working the last few weeks!
- AMZN dropping during opening, seemed to stabilze by this time
- AMZN at $3006
- I have a bearish bias for election week
- (Looking back: short legs at 15 delta)
Adjustments:
- Did NOT adjust when AMZN & market rallied on 11/4 and AMZN broke through my call leg in the morning ($3211 at 10:30)
- Still did NOT adjust when AMZN was ending 11/4 at $3240+
- Closed put leg 11/5 9:30 for $0.05 ($50 debit)
- Both unsure how/if to adjust call leg, and still biased towards a market retraction
Close: Did not get a call leg close fill @ $10.00, so both options expired ITM & were exercised
Net Loss: ($7400)

One of my biggest takeaways was that relying on my conviction for what Mr. Market was going to do (and thus not needing to adjust trade 6) was absolutely wrong. I also (at that time) did not know many strategies for adjusting a losing iron condor - just rolling up the losing leg (which might have helped had I done it on 11/4, but also might have just increased my max loss if I wouldn't have rolled up high enough).

After having gone through this experience - now I know there are some other adjustments available - back ratio spreads, buying a further OTM put or call, etc. And I also went back & reviewed the greeks and realize I could have more strategically selected strikes based on the greeks. And of course - lowering my quantity and getting wider wings (for the same BPR).

What else should I be learning from this experience? What else am I missing?

 

[misterkel]

Imo, AMZN is too volatile for IC's. Looks good on paper, but moves way too much.

 

[taowave]

If the IV has popped disproportionately to HV, now is the time to put IC on...With that said,having knowledge of greeks without a well defined hedging/adjustment strategy makes one a dangerous trader..

Imo, AMZN is too volatile for IC's. Looks good on paper, but moves way too much.

 

[misterkel]

If the IV has popped disproportionately to HV, now is the time to put IC on...With that said,having knowledge of greeks without a well defined hedging/adjustment strategy makes one a dangerous trader..

If the IV pops in a FAANG (or in almost any stock) there's a real reason for it. I think that's actually one of the riskiest times. IC's don't work against a trend very well. And AMZN trends upward consistently. I don't like condors myself, but if I traded them, I would look for a volatile stock that is heavily mean reverting and seldom trends. Not a glam stock.
Having said that, I definitely see the appeal of $200 wings over 3 weeks.
cheers.

 

[taowave]

Look at the large vol pop in AAPL and MSFT..What was the reason??

Was it Soft Bank? Robin Hood? Structured Products??

Does anyone really know or should they care??? If I can buy ridiculously cheap Flys/condors,due to a pop in vol count me in..